On March 17, 2008, the day that
Bear Stearns failed, international journalist
Max Keiser interviewed officials at the
Bundesbank, the German central bank. Keiser's
report, released just a few days ago, contains a
stunning admission. Toward the end of his report
(posted at http://www.youtube.com/watch?v=EzVhzoAqMhU),
Keiser stated, "The most fascinating thing I've
learned is that all the gold in Germany is in
New York."

In the past, the Bundesbank has denied that
German gold reserves were in the custody of the
United States. To now reveal the truth may well
cause a great controversy in German political
circles.

A few years ago, Bundesbank officials admitted
that it had engaged in gold swaps on behalf of
another central bank, but did not identify the
other party. At the time, several analysts
figured that meant the Bundesbank had cooperated
with the U.S. government in gold price
suppression activities.

The Germans could have liquidated physical gold
stored in Germany on behalf of the U.S.
government and replaced it by taking title to
gold stored in U.S. government vaults. It was
around this time that the U.S. government
completely changed its report on U.S. gold
holdings from referring to them as "reserves" to
calling them "Custodial gold and silver
reserves."

As I write this, it isn't possible to predict
the extent of the fallout of this revelation. At
a minimum, I would expect a public outcry in
Germany calling for gold reserves to be shipped
back home.

Such a request could put the U.S. government on
the spot, as there is some concern that the
German gold reserves are no longer intact. Some
or all of it may have been distributed to the
public as part of gold price suppression
schemes. If so, any request by the German
government to return gold could cause a severe
supply squeeze. To prevent a surge in gold
demand sparked by this revelation, there could
be significant price suppression efforts early
this week.

There were other significant developments in the
gold market last week.

The current Central Bank Gold Agreement was set
to expire in mid-September. A new five-year
agreement was adopted last week. It reduces the
total limit of gold sold by the 19 signatory
central banks from 500 metric tons to 400 tons
per year, and specifically mentions that any
sales by the International Monetary Fund are to
be part of this limit. This lower limit is still
excessive, as it looks like there will be only
150-200 tons of central bank gold sold in the
final year of the current agreement.

While at the American Numismatic Association
convention in Los Angeles last week, I asked
U.S. Mint Director Edmund Moy if the Mint would
be striking 2009-dated bullion-issue fractional
gold American Eagles and proof silver American
Eagles. He told me that the Mint is committed to
issuing all of these coins. He then went on to
say he could not guarantee that these would be
produced because of continuing strong demand for
the bullion-issue one ounce gold and silver
Eagles. When someone else asked about the
bullion-issue one ounce gold Buffaloes, he gave
a similar answer.

At the ANA convention, classic U.S. gold coins
were strong. In particular, U.S. double eagles
and circulated $5 Liberty coins rose
significantly in price. At least some of this
demand appeared to be dealers scrambling to find
other sources of supply after National Gold
Exchange defaulted on deliveries when it filed
for Chapter 11 bankruptcy in late July. I expect
this to be a temporary boost, as eventually the
collateral seized by NGE's main creditor will be
liquidated.

Dealers who had U.S. gold coins in inventory
were happy with the ANA show. Dealers with
generic certified Morgan and Peace dollars were
enjoying very strong sales. Through Thursday,
the dealers that I asked estimated that public
attendance was down significantly from past
years. Dealers generally told me that demand for
numismatic coins was so-so, or even worse and
all said general rare coin sales were below
prior ANA shows. This lower attendance may have
been influenced by the first-time imposition of
a $6 admission charge on nonmembers in addition
to the general economic woes. My own company set
an all-time sales record for an ANA show, but
only because we had purchased sizeable
inventories of classic U.S. gold coins in the
week before the show.

Last Wednesday afternoon, there was some unusual
gold trading after the COMEX closed at 1:30 p.m.
Eastern time. As often happens, gold prices in
the thinly traded ACCESS market were knocked
down several dollars. However, apparently one
major buyer stepped in and quickly drove up
prices by $10. This sudden jump almost certainly
pushed the U.S. government and its trading
partners to take extraordinary measures to hold
down prices the rest of the week.

Some technical traders say their charts point to
the possibility that gold could be ambushed
downward one more time before gold finally
passes $1,000 to stay. The gold price endured
significant ambushes in March and July 2008, so
it is possible. I wouldn't count on it though.

Last week, demand from India surged at levels
above $960 as jewelers built up inventory for
the major sales season. Rather than waiting and
hoping that there will be another significant
drop, which may or may not occur, you might
better make half of your purchases now, and then
wait a while on the rest to see if you get
lucky.

If prices never dip significantly, you at least
will have some gold bought at current levels. If
prices do fall, you will have the opportunity to
take advantage of that with half of your funds.